Inwood National Bank v. Fagin and Its Implications for Farmers and Small Business Owners

As individuals  plan for their legacy, the intersection of estate planning, business ownership, and elder law becomes increasingly critical, especially for farmers and small business owners who often rely on closely held business interests to sustain their families. A recent Texas Supreme Court decision, Inwood National Bank v. Fagin, No. 24-0055 (January 31, 2025), offers valuable insights into the complexities of transferring such interests into trusts, particularly when contractual restrictions and personal reconsiderations come into play. This case, while rooted in Texas law, has broad implications for Ohio and Missouri residents and others navigating similar challenges, especially those in agriculture or small enterprises.

Case OverviewThe Inwood National Bank v. Fagin case centered on Christy Fagin, who sought to transfer shares of Inwood Bancshares, Inc. (an S corporation) into a Qualified Subchapter S Trust (QSST) for her husband, Kyle, as part of estate planning. The shares were governed by a shareholder agreement requiring Inwood’s approval for transfers. The trust document listed the shares on Schedule A with the notation that Christy “intends” to transfer them upon Inwood’s approval. After initiating the process—prompted by the need to replace a lost share certificate—Christy reconsidered, realizing the transfer would make the shares Kyle’s separate property, irrevocable due to the QSST election. She withdrew her intent, never surrendering her replacement certificate, and Inwood did not countersign the necessary subscription agreement. Kyle sued Inwood for tortious interference, claiming the QSST owned the shares, but the Texas Supreme Court reversed the appeals court, ruling that the transfer was never complete due to the unfulfilled condition of Inwood’s approval.Legal AnalysisThe Court held that the transfer was subject to a condition precedent (Inwood’s approval), which was not satisfied despite the trust’s irrevocability. The conditional language on Schedule A distinguished this from an immediate gift, and the lack of bilateral performance (e.g., certificate surrender, countersignature) underscored that no enforceable contract existed. This decision aligns with prior cases like Smaldino v. Commissioner, which addressed transfer tax implications, but Inwood emphasizes the primacy of contractual conditions over trust intent when external approvals are required.Implications for Farmers and Small Business OwnersFor farmers and small business owners, this case highlights several key considerations:

• Transfer Restrictions in Business Agreements:  Many family farms and small businesses operate under shareholder agreements, LLC operating agreements, or buy-sell agreements that restrict equity transfers, often requiring management or co-owner approval. For instance, a farmer transferring farmland or equipment interests into an irrevocable trust to protect assets for Medicaid eligibility must navigate these restrictions. Evem a conveyance of business interests to a revocable trust must orient transfer considering these restrictions. Inwood clarifies that failure to secure approval renders the transfer incomplete, potentially leaving assets exposed to creditors or unintended heirs.

• Irrevocable Trust Challenges: Irrevocable trusts are popular for elder law planning to shield assets from nursing home costs, but Inwood underscores the risk if the grantor reconsiders mid-process. A farmer funding a trust with a 50% stake in a family LLC might change their mind upon realizing it reduces their control or income, as Christy did. The case suggests that until all conditions (e.g., co-owner consent) are met, the grantor can retract, but this delay could jeopardize Medicaid planning if within the 5-year look-back period (42 U.S.C. § 1396p).

• Revocable Trust Challenges:  Revocable trusts are often utilized by farmers and small business owners to orient their estate administration privately, outside of probate.  Trusts typically make challenge and contests more difficult by, among other things, including a "No-Contest" clause.  Failure, however, to properly assign, transfer, or convey business interests might open the trust estate estate to challenge or contest particulalrly, as is often the case, farming heirs are treated differently than non-farming heirs.  Non-farming heirs would not have to contest the trust, but the failure to properly convey business interests to the trust.

• Estate Planning Precision:  The decision emphasizes the need for precise drafting. Listing assets on a trust schedule with conditional language (e.g., “subject to approval”) protects against premature transfer claims, but farmers must ensure all parties, trustees, co-owners, and legal counsel, align on procedures. A small business owner transferring a machinery business interest might face disputes if the trust assumes ownership without formal transfer, as seen in Kyle’s failed claim.

• Marital and Succession Planning:  The Fagin’s marital discord post-transfer attempt mirrors issues common in family-run operations. A farmer transferring assets to a spouse’s trust might reconsider if it alters property division in a potential divorce. Inwood supports the grantor’s right to withdraw before completion, offering flexibility but requiring clear documentation to avoid litigation, as Kyle pursued.

• Elder Law and Medicaid Considerations:  
  For aging farmers or business owners seeking Medicaid, a disclaimer to redirect assets (e.g., to a child’s trust) could be affected by transfer restrictions. If approval is pending and the grantor retracts, as in Inwood, it may not trigger a penalty, but any subsequent transfer attempt within the look-back period could be scrutinized. Consulting an elder law attorney is crucial to document intent and timing.

Key Takeaways

• Contractual Compliance: Farmers and small business owners must strictly adhere to business agreement terms (e.g., approval processes) when funding trusts. Oral agreements or partial steps, as in Inwood, won’t suffice.
• Drafting Clarity: Trust schedules should explicitly note conditional transfers, avoiding assumptions of immediate ownership. This protects against disputes and ensures alignment with business governance.
• Flexibility and Risk: The ability to retract a transfer offers flexibility but risks delaying asset protection strategies, especially for Medicaid planning. Early coordination with co-owners and counsel is essential.
• Legal Guidance: Given the case’s emphasis on procedural rigor, engaging experienced estate and elder law attorneys is vital to navigate restrictions and protect generational wealth.

ConclusionInwood National Bank v. Fagin serves as a cautionary tale and a planning tool for farmers and small business owners. It reinforces that contractual conditions trump trust intent until fully executed, offering a safety net to reconsider but demanding meticulous execution. For Ohio and Missouri rresidents, where family farms and small businesses are cornerstones of rural economies, this ruling underscores the need for tailored estate plans that balance control, protection, and succession. Consult an attorney to align your trust funding with business agreements and elder law goals, ensuring your legacy thrives for future generations.

Doolin v. Owen: A Cautionary Tale regarding Springing Powers of Attorney

The Kentucky Court of Appeals’ decision in Doolin v. Owen, decided on July 18, 2025, underscores the critical importance of careful drafting and execution of powers of attorney (POAs). This case highlights the pitfalls of “springing” POAs, those POAs that become effective only upon a specific condition like the incapacity of the principal, and offers valuable lessons for seniors and families planning for incapacity and asset management.

Case Background and Facts
In 2015, Linda Miller executed a general power of attorney (POA) in Kentucky, designating an agent to manage her affairs. The POA was designed as a “springing” POA, meaning it would only take effect upon Linda’s disability, as confirmed in writing by her personal physician. The document also specified that it was a durable POA under Kentucky law, intended to remain effective even if Linda became incapacitated. Later, Linda was declared partially disabled in managing her personal affairs and wholly disabled in managing her financial affairs, though the record did not indicate whether her personal physician provided the required written confirmation.
In 2017, relying on the authority of the POA, Linda’s agent established a trust agreement naming Marcy Doolin as the beneficiary. The trust was intended to manage and distribute Linda’s assets. Linda passed away in September 2022, and disputes arose regarding the validity of the trust created under the authority conferred by the POA. Marcy Doolin filed a petition in the Jefferson Circuit Court seeking a declaratory judgment to confirm her rights as the trust’s beneficiary. David Owen, the administrator of Linda’s estate, moved to dismiss Marcy’s petition, arguing that the trust was invalid because the POA was never properly activated.
The circuit court ruled in favor of Owen, finding that the 2015 POA was never triggered due to the absence of a written confirmation of disability from Linda’s personal physician, as required by the POA’s terms. Consequently, the trust created under the POA’s purported authority was deemed void ab initio (invalid from the outset). Marcy sought postjudgment relief, presenting new evidence: a 2017 MRI report and a physician’s report indicating Linda’s disability. The physician was not, however, Linda's personal physician. The circuit court denied her motion. Marcy appealed to the Kentucky Court of Appeals.
On appeal, the Kentucky Court of Appeals reviewed the circuit court’s dismissal de novo, as it involved a legal question of contract interpretation (the POA). That means that the appellate court did not defer to the trial court in any way, but looked at the entire record as if the trial was conducted fresh from the beginning.  The court also reviewed the denial of postjudgment relief for abuse of discretion. The appellate court affirmed the circuit court’s rulings, solidifying the importance of adhering to the specific conditions outlined in a springing POA.
The Kentucky Court of Appeals addressed two primary issues:

1. Was the 2015 POA properly triggered, allowing the creation of the trust agreement under its authority?
2. Did the circuit court abuse its discretion in denying Marcy’s postjudgment motion based on newly discovered evidence (the 2017 MRI report and another physician’s report)?

These issues are critical for seniors and families, as they highlight the legal and practical challenges of employing and relying on springing POAs to manage financial affairs during incapacity.The Kentucky Court of Appeals’ HoldingThe Court of Appeals affirmed the circuit court’s rulings, with the following key findings:

• POA Not Triggered: The court treated the 2015 POA as a contract, interpreting its terms strictly. The POA explicitly required written confirmation of Linda’s disability by her personal physician to become effective. Since no such documentation was provided in the record, the POA was never activated. As a result, the trust created in 2017 under the POA’s purported authority was void, as the agent lacked the legal authority to establish it.
• Postjudgment Relief Properly Denied: Marcy’s postjudgment motion relied on a 2017 MRI report and a report from another physician indicating Linda’s disability. The Court of Appeals found that these documents did not satisfy the POA’s specific requirement for a written confirmation from Linda’s personal physician. The circuit court did not, therefore, abuse its discretion in denying the motion, as the new evidence failed to meet the POA’s springing condition.

The court also dismissed Marcy’s additional arguments, finding them either unpreserved, insufficiently explained, or unpersuasive. The decision reinforced the principle that springing POAs require strict compliance with their triggering conditions to be effective.Lessons for Seniors and FamiliesThe Doolin v. Owen case, combined with insights from the Aging-in-Place Planning and Elderlaw blog article, “The Impotent Power of Attorney” offers critical guidance and warning for seniors and their families:

• Understand the Risks of Springing POAs:  As highlighted in “The Impotent Power of Attorney,” springing POAs, like the one in Doolin v. Owen, can create significant obstacles and introduce unnecessary variables into the orderly administration of an estate plan. Requiring a physician’s written confirmation of disability may seem like a safeguard, but it can render the POA wholly ineffective if the condition is not met precisely.  These are commonly rejected by third parties, e.g., banks, brokers, and financial institutions, that recognize these uncertainties and desire to avoid being embroiled in controversy.  Seniors should carefully weigh the benefits and risks of springing POAs versus immediate POAs, which take effect upon signing.

• Ensure Clear and Specific POA Terms: The case underscores the importance of drafting POAs with clear, achievable conditions. The requirement for a specific physician’s written confirmation led to the trust’s invalidation. Seniors should work with an elder law attorney to draft POAs that avoid overly restrictive conditions, ensuring the agent can act when needed without unnecessary hurdles.

• Verify Compliance with POA Conditions:  Families and agents must diligently comply with a POA’s terms. In Doolin, the absence of the required physician’s letter nullified the trust. Before taking significant actions like creating trusts or managing assets, agents should confirm that all conditions of the POA have been met and document compliance thoroughly.

• Plan Early to Avoid Disputes:  Li
  nda’s trust was intended to benefit Marcy, but its invalidation disrupted her estate plan and led to litigation. Seniors can prevent such outcomes by establishing estate plans, including POAs and trusts, well before incapacity. Early planning with an elder law attorney can ensure that documents are valid and aligned with the senior’s wishes.  If Linda had settled the trust at the same time that she created the POA, the result would likely have been as she intended.  

• Engage Professional Guidance:  The complexity of Doolin v. Owen illustrates the value of legal expertise in estate planning. An elder law attorney can help draft POAs, trusts, and other documents to withstand legal scrutiny, advise on the implications of springing versus immediate POAs, and assist in resolving disputes if they arise. 

• Document Disability Promptly: For springing POAs, obtaining and preserving the required documentation (e.g., a physician’s letter) is critical. Families should coordinate with healthcare providers to secure written confirmation of incapacity as soon as it is diagnosed, storing it securely with the POA to avoid challenges like those faced in Doolin.  A forensic (after the fact) letter or statement of expert evaluation may not suffice either to protect either prior or subsequent decisions.  

• Review and Update Estate Plans Regularly: Life changes, such as a new diagnosis or a change in physician, can affect the validity of a springing POA. Seniors should review their POAs and estate plans periodically to ensure they remain effective and reflect current circumstances.

ConclusionDoolin v. Owen serves as a stark reminder of the potential pitfalls of springing powers of attorney and the importance of meticulous estate planning. Seniors and their families must approach POAs with care, ensuring that conditions for activation are clear, achievable, and properly documented. By working with an elder law attorney, planning early, and reviewing documents regularly, seniors can protect their assets and ensure their wishes are honored, avoiding the kind of legal disputes that invalidated Linda Miller’s trust. For more insights on avoiding an “impotent” POA, revisit our blog post, “The Impotent Power of Attorney,” and consult an elder law professional to safeguard your future.